When a college closes

The legal and educational implications of Lebanon College’s closing

When Lebanon College, the small, community-based, private nonprofit college on the mall in Lebanon, closed last year, the issues and educational trends involved in the decision were many. 

Founded in the 1950s by community members, Lebanon College provided vocational training to students from the Upper Valley for decades prior to its closure at the end of the 2014 academic year. Except for the last several years, it had volunteer presidents as well as volunteer boards of directors, and was headed from time to time by some of the most prominent leaders in the Upper Valley. Others who served on the board did so selflessly to make sure the students in the area had vocational training opportunities.

The founding corporate documents of Lebanon College were short, and it obtained IRS 501(c)(3) status before that process became terribly complicated. 

Until signs went up on Interstate 89, most people from outside of the Lebanon area were unaware of the existence of the college. When it closed, at the request of various state agencies, Sheehan Phinney Bass + Green undertook the project of assisting in its closure on a pro bono basis, having had a similar experience in closing Chester College and representing other educational institutions in New Hampshire and beyond. 

The range of issues involved in the closure of Lebanon College are instructive in how complex the not-for-profit education world has become. 

Vulnerable schools

Lebanon College’s closing, like the closing of Chester College, Mt. Washington College, the sale of Daniel Webster College to a for-profit corporation, and the disappearance of many small institutions before them, previously continues a trend in national and New England higher education: Small, vulnerable schools close in the face of more robust public institutions and both declining and changing student populations.

Lebanon College, faced with competition from the Community College System of NH and online education providers, found itself in a tough competitive situation where its costs per student were higher and its tuition in excess of the competition. 

When a college closes, there are a lot of regulatory matters with which to contend. First, the director of charitable trusts of the Attorney General’s Office makes sure that restricted endowment funds continue to serve a charitable purpose.

Lebanon College’s tiny endowment had to be secured and made available for the purposes for which it was raised, namely scholarships, a process which will be completed when a scholarship fund is funded at the NH Charitable Foundation to benefit Upper Valley students in similar programs. 

Student records, transcripts and other materials were transferred to the New Hampshire Department of Education, where graduates can obtain them in the future, and that process took a lot of time and effort to get them organized and transferred to the state, in the form the state requires. 

All financial aid records have to be reconciled with the funding sources, and that process took additional time and effort to accomplish.

Obviously, creditors of a closed institution have to be satisfied to the extent that there are assets with which to do it. In the case of Lebanon College, its financing bank had a mortgage on its two buildings on the mall and a security interest in all of the remaining assets. Ultimately, the bank foreclosed on its security.

After the foreclosure, the bank, as owner of the property, had to deal with the various parties that had expressed interest in the real estate. 

Some good news

As with any other closure, the college’s employees had to be terminated, obligations to them satisfied, and that process took administrative work, as well. 

In the case of Lebanon College, there is some good news at the end of the process, however. The Community College System of NH, through River Valley Community College, is poised to purchase one of the buildings in which the college operated and open a program offering Lebanon area students an opportunity to receive courses in the same location.

While headlines that indicated “Lebanon College to reopen” were inaccurate, continuing its heritage by having CCSNH offer courses in the same space is a hopeful development, and making scholarships available to it from the small restricted endowment funds now operated by the Charitable Foundation, will at least continue the educational mission in the same location.

In any event, the closure of even a small institution involves many complex details, many governmental offices, and hard work on the part of the board of trustees, none of whom got paid for their efforts.

Brad Cook, a shareholder in the Manchester law firm of Sheehan Phinney Bass + Green, heads its government relations and estate planning groups.

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